PDA

View Full Version : The Humiliation of Greece


ricardisimo
02-24-2012, 03:34 AM
February 23, 2012

Greece Avoids Default, But for How Long?
The Humiliation of Greece

by MIKE WHITNEY
“How can one speak of default in the future tense when we’re already bankrupt… Don’t you see the people scouring through garbage and sleeping on sidewalks? Those who led us to bankruptcy – the troika and the government – now claim they want to save us from bankruptcy. It’s incredible.”
– Mikis Theodorakis, composer and songwriter
“Everything is changing. Everything is frightening.”
–Kathimerini, Greek newspaper
If Greece’s €130 billion loan was going to be used for fiscal stimulus, then it might be worth the commitment. Because that kind of money could put a lot people back to work and kick-start the economy fast. But the loan isn’t going to be used for stimulus. It’s going to be used to recapitalize the banks and pay off creditors, neither of which will do anything to boost activity or create jobs. So, why bother? Why dig an even deeper hole if it achieves nothing? If that’s the case, then Greece should just default now and start rebuilding the economy ASAP. There’s no point in putting it off any longer.
The troika (the European Central Bank, the European Union, and the International Monetary Fund) is demanding another €3 billion in spending cuts even though unemployment is tipping 20 percent and the economy shrank 7 percent in the last quarter. What sense does that make? You don’t have to be a genius to figure out that Greece won’t reach its budget targets if tax revenues continue to fall because everyone’s either been laid off or taking a pay-cut. It will just make a bad situation even worse. But the troika doesn’t worry about these type of things. They don’t care that their lamebrain economic theories have failed miserably so far, or that their austerity measures have been a complete flop. They just keep plugging along making the same mistakes over and over again, impervious to the criticism of reputable economists, oblivious to the abysmal results, they remain steadfast in their commitment to belt tightening, sure that a strict diet of breadcrumbs and water is the best way to nurse an ailing economy back to health. It doesn’t bother them that the facts prove otherwise.
Fitch isn’t convinced that austerity will work, in fact, the ratings agency lowered Greece’s rating to “C” on Tuesday, saying that they now think a default is “highly likely”. Similarly, a “confidential report” that was given to EZ finance ministers on Sunday –indicates there’s a high-probability that the slump in Greece will get worse and that the country’s debt-to-GDP ratio will still be 160 percent by 2020, a full decade after the implementation of austerity measures. So even if Greece sticks with the hairshirts and follows the troika’s diktats orders to the “T”, its debt could still be at “unsustainable” levels 8 years from today.
Then why take the loan to begin with? Why not just default quickly and get it over with? Let the creditors (mainly German, French and English banks) sort out the losses. That’s their problem. Look; if you can’t pay your bills, you declare bankruptcy, right? That’s the way the system’s supposed to work. The same rule applies to countries. If they get in over-their-heads and can’t service their debts; they call a “Time Out”, raise a white flag, and start over. It’s time for Greece admit that the game is over and call it quits.
Now we’ve all heard a lot about “lazy Greeks” and “profligate spending” over the last two years, but here’s the truth: The lenders that are always to blame. Always. It doesn’t matter if Greece is the biggest deadbeat in history; that’s completely irrelevant. It’s the lender’s responsibility to do due diligence to make sure that the borrower is creditworthy. The borrower has no responsibility in that regard. None. It’s not his job to sniff around to see if so-and-so is employed, or if he pays his bills, or if he has a good credit history or whatever. That’s the banks job; and they’re pretty good at it, too, (when they’re not scamming the system with toxic mortgages.) That’s because they have very strict criteria for lending, and if an applicant doesn’t meet that criteria, then –BOOM–out the door they go. So, if EU banks lose a ton of money because they didn’t do their homework and they were too stupid to figure out that lending to Greece was riskier than lending to Germany, then who are you going to blame? Greece? No way.
Of course, the people in power reject this line of reasoning because they don’t think banks or bondholders should ever lose a dime. That’s what this latest bailout fiasco is all about, trying to protect ignoramus bankers from losing doe on their crappy bets. But if the bankers don’t take the losses, then, who will? Working people? That’s how its playing out at present, but that’s also why Athens has turned into a war zone, because the wrong people are getting slammed for a crisis they didn’t create and shouldn’t have to pay for.. Here’s how Satyajit Das sums it up over at naked capitalism: ”There is no longer any pretence of “assisting” Greece. It is about ensuring that German and French banks minimise their losses.”
See? This isn’t about Greece at all. It’s just another bailout for the big finance creeps. Here’s more from Das:
“It is probable that no funds will be released to Greece but rather placed in a special account from where it will be used to meet the country’s debt obligations….Germany and the Netherlands have suggested that the EU assume control of Greek finances and elections be suspended in favour of a technocratic government, having the confidence of Berlin, Paris and Brussels. In the end, the communique required Greece to pass a humiliating law giving priority to debt repayment over other government obligation.” “It’s all Greek to me”, Satyajit Das, naked capitalism)
Now that Greece has agreed to indentured servitude for the next millennia or so, the Eurocrats have decided to pile on more onerous conditions, like putting a taskmaster in Athens to oversee the budget to make sure that foreign creditors get their money before pensioners, dependent mothers, cancer patients, disabled veterans, homeless children, and unemployed workers. How’s that for priorities? At the same time, hardliners in Germany want the Greek parliament to pass a bill that would make it impossible for future parliaments to reject the terms of the bailout. In other words, Greece is expected to repeal the fundamental principles of democratic government in order to pay back the cutthroats that issued the loans. The next thing you know, the Greeks will have to post their firstborn as collateral on the loans. Where does it stop?
And–as we said earlier–the bailout doesn’t even fix the problem. The Greek economy will continue to decelerate while the nation’s debt-to-GDP ratio will continue to rise. So, once again, why agree to a deal that’s only going to make matters worse?
Here’s a clip from an article in Der Speigel that draws the same conclusion:
“Of course, the 130 billion would not solve the problem. It is only intended to buy time. Time until the financial markets have stabilized to the extent that they can handle the actual bankruptcy of Greece without a chain reaction. Without bank failures, no knock-on effects through the loss of credit insurance and no interest for the remaining problem of explosion of the Euro-zone countries.” (“Stop the 130-billion bank transfer!”, Der Speigel)
So, Greece is being sacrificed to prevent another Lehman Brothers; is that it? It’s being stripped of its sovereignty and its people are being reduced to a decade of grinding poverty because undercapitalized, over-extended and under-regulated financial institutions are lashed together in counterparty conga-line that could blow up at any minute and take down the entire financial system along with it. Is that it? Is the system really that fragile or is Lehman being invoked (much like 9-11) to achieve a different objective altogether; to replace elected representatives with agents of the bank Mafia who plan strip-mine the country of its national treasures while crushing organized labor beneath its bootheel.
But isn’t Greece at least partially responsible for the present crisis?
Sure. Corruption, cronyism and tax evasion are rampant, but the real problems didn’t surface until 2009 as composer Mikis Theodorakis explains in this post on his web site:
“Until 2009, there was no serious economic problem. The major wounds of our economy were the enormous expenses related to the purchase of war material and the corruption of a part of the political and economic-journalistic sector. For both of these wounds, foreigners are jointly responsible. Germans, for instance, as well as French, English and Americans, earned billions of Euros from annual sales of war material, to the detriment of our national wealth. That continuous hemorrhage brought us to our knees and did not permit us to move forward, while at the same time it made foreign nations prosperous. The same was true of the problem of corruption. The German company S, for instance, maintained a special department for buying off Greek stakeholders in order to place its products in the Greek market. Hence, the Greek people have been victims of that predatory duo of Greeks and Germans, growing richer at their expense.
It is obvious that these two big wounds could have been avoided if the leaders of the two pro-American parties in power hadn’t been eroded by corrupt elements who resorted to excessive loans in order to cover the leakage of wealth (the product of the Greek people’s labor) into the hands of foreign countries, resulting in the public debt reaching 300 billion Euros, i.e. 130% of GDI (Gross Domestic Income).”
Sound familiar? The banks lend gobs of money to crooked contractors and venal politicians who line their pockets while buying a bunch of useless military equipment in one big feeding frenzy. Everybody gorges at the public trough; everybody gets fat and happy. How many times have we heard that story before? And–Oh yeah–some of the Wall Street heavyweights also helped the Greek government hide the amount of red ink that was on its books so they could keep this larcenous sharkfest going as long as possible. Now that the bills have come due, the cockroaches have scattered, and working people are left to pick up the tab.
Is it any wonder why the victims of this baldfaced ripoff have taken to the streets and set Athens ablaze rather than accept their fate lying down?
No one thinks that this latest Greek bailout is anything more than a can-kicking exercise designed to prolong the inevitable. Eventually, Greece will default, and the reason it will default, is because the policies that have been implemented have made failure unavoidable. The vicious belt-tightening regime imposed by Brussels and Frankfort wasn’t intended to lift the economy back to productivity and growth; it was intended to punish, humiliate and create a “permanent state of colonial dependency”. It’s just “shock therapy” in different wrapping.

MasterOfPuppets
02-24-2012, 04:06 AM
Ric you should watch this video, its quite relevant to the article you posted.

Interview - Confessions of an Economic Hit Man - Part I


http://www.youtube.com/watch?v=yTbdnNgqfs8

timmyBean
02-25-2012, 07:06 PM
The European Central Bank is a tremendously anti-worker institution. Even the Federal Reserve with its servitude to financial markets still has (in principle) democratic accountability. The Fed has a dual mandate of maximum employment (defined as 4% by the Humphrey-Hawkins Full Employment Act) and price stability (curbing inflation).

The ECB has no commitment to keeping the unemployment rate low in Europe. They have a goal only at price stability (with a 2% inflation target). They could care less about the unemployment rate in Europe. The ECB also has in general much higher interest rates than the Fed. (High interest rates = high unemployment.) ECB policies are extremely unpopular in Europe, but that doesn't matter to them because they have zero democratic accountability.

So as long as you've got these ideological fanatics in the ECB, who are obsessed with inflation, there are few options for Greece, Italy and the rest. However, if these countries (Greece, Italy, Ireland, Spain) do default then Europe will go into a deep recession, and the entire world will be affected. It would certainly drag the US into another recession.

Some economists have actually been calling for the Fed to buy the bonds of these European countries. So the Fed would in effect be doing the job of the ECB. That could actually stem a crisis and even be a profit-making opportunity for the Fed, because if the US stepped in, it would provide some confidence for the economies of those countries.

This kind of intervention might sound disagreeable to Americans, but if the Fed doesn't intervene, and the ECB allows these countries to default, then that would be a disaster for American workers. We're talking even higher unemployment than we already have.

Anyway the Fed probably wouldn't actually have to go through with such an action. They could just put everything in place to do it (with their finger on the trigger so to speak), and it would create enough of a threat to the ECB that they might actually take action and do what the Fed could otherwise do, which is to finance the debt of these European countries at a reasonable rate.

If anyone is in doubt about this idea, then just consider that the Fed would just be intervening in the European economy in the same way that China has sustained the US domestic economy by buying up billions of dollars in US government bonds. (They obviously had their own reasons for doing so too.)

So, it's either sit by and wait for this disaster to happen while the troika play this insane game of chicken, or take some action to stop it.

ricardisimo
02-25-2012, 07:29 PM
What I find interesting is this bizarre commitment to the Euro. As the UK has demonstrated, you can be a full member of the EU, with full rights and benefits, but run your own currency, and use it as a tool of republican autonomy. At some point you'd think the little light would go on inside the heads of various at-risk governments; Greece obviously, but also Spain, Italy, Ireland, etc.

timmyBean
02-26-2012, 10:26 AM
What I find interesting is this bizarre commitment to the Euro. As the UK has demonstrated, you can be a full member of the EU, with full rights and benefits, but run your own currency, and use it as a tool of republican autonomy. At some point you'd think the little light would go on inside the heads of various at-risk governments; Greece obviously, but also Spain, Italy, Ireland, etc.

Yeah, Greece actually still has some bargaining power. If they got a disorderly default it would have a ripple effect because there would then be much higher risks associated with the debts of Italy, Spain, Ireland, etc, leaving those countries with little choice but to also default. That would be a disaster for Europe. And it wouldn't just be an idle threat because defaulting and freeing themselves from the Euro may actually be a better option in the long run for those countries.

In 2001 Argentina had the biggest sovereign default in history (something like $95 billion). Their economy only shrank for one more quarter following the default and devaluation. After that it continued to grow rapidly for the next 6 years, and they're still growing well to this day. So from 2002 to 2011 Argentina's economy has grown over 90%. It's been a tremendous success story for them after having been indexed to the dollar and constrained for decades by IMF lending policies.

But that's not a decision to be made lightly. Argentina took only three years to get back to its pre-recession levels of GDP after defaulting. If Greece defaults it will take them much longer to fully recover its economy, probably a decade or more. Still if the European authorities (along with the IMF) stubbornly continue with these extremely harmful policies that are keeping countries like Greece in a perpetual state of high unemployment and slow growth, then defaulting on their debt and extricating themselves from the Euro looks like the better option in the long run.

I agree with you about this ideological commitment to the common currency. It was in fact initiated under extremely right-wing terms, and is very unpopular. Since the Eurozone countries are stuck in a fixed exchange rate, they can't adjust their economies through monetary policy (as they could if they could print their own money). So a country like Spain, for example, has to adjust by having such high unemployment that wages are pushed way down so that even though Spain's exchange rate is set, it actually falls in real terms because wages are so low. These are the kinds of measures that the ECB expects of the governments of countries like Spain or Greece. It's cruel.

As you say, the UK has managed to avoid those kinds of measures because the pound has fallen over the last few years. But the UK government and Bank of England are not exemplary by any means. They've followed the same "austerity" recipe as Europe and the US. The point being these are political decisions. The outcomes we're seeing aren't caused by some natural forces in the Eurozone economy. It's just that institutions like the European Central Bank are extremely undemocratic, and are answerable only to financial institutions. And in fact, the ECB is only legally obligated to curbing inflation with no obligation at all to full employment. Meanwhile the living standards of the majority of people in countries like Greece or Spain or Ireland are being pushed downward through no fault of their own.

ricardisimo
02-26-2012, 02:52 PM
True, Britain is still committed to Thatcherism, whether the PM is Tory or Labour, doesn't matter. Still, the apparatus is there, it just needs to be used. No such tools in the rest of Europe, that was my only point with that.

I'm also more than a little concerned with just how effective all of the PR has been regarding "those deadbeat Greeks". At this point in my life, nothing about the machinery should surprise me, but still, otherwise progressive folks with whom I speak about this are mouthing all of the "correct" views about the Greek crisis. Disturbing.

timmyBean
02-26-2012, 06:59 PM
True, Britain is still committed to Thatcherism, whether the PM is Tory or Labour, doesn't matter. Still, the apparatus is there, it just needs to be used. No such tools in the rest of Europe, that was my only point with that.

I'm also more than a little concerned with just how effective all of the PR has been regarding "those deadbeat Greeks". At this point in my life, nothing about the machinery should surprise me, but still, otherwise progressive folks with whom I speak about this are mouthing all of the "correct" views about the Greek crisis. Disturbing.

Yeah, it's a pretty powerful doctrinal system we live in. It's relentless and often preys upon people's worst assumptions. You're right, it's particularly disturbing when it affects even our common sense. I guess it's sometimes more convenient to toe the party line instead of looking into the facts. Sadly getting facts straight often requires some effort. You have to disentangle them from all the propaganda and imagery.

ricardisimo
02-27-2012, 01:02 AM
Yeah, it's a pretty powerful doctrinal system we live in. It's relentless and often preys upon people's worst assumptions. You're right, it's particularly disturbing when it affects even our common sense. I guess it's sometimes more convenient to toe the party line instead of looking into the facts. Sadly getting facts straight often requires some effort. You have to disentangle them from all the propaganda and imagery.
And you have to lay off the beer every now and again. I certainly have trouble with that, as do others here (who will go unmentioned.) :whistle:

timmyBean
02-27-2012, 03:02 AM
And you have to lay off the beer every now and again. I certainly have trouble with that, as do others here (who will go unmentioned.) :whistle:

Some of my most lucid thoughts come while drinking beer. At least they seem that way at the time.

ricardisimo
02-27-2012, 03:31 AM
Some of my most lucid thoughts come while drinking beer. At least they seem that way at the time.
Wine yes, beer not so much. You should read Nietzsche's Birth of Tragedy. Dionysus loves winos.

timmyBean
02-27-2012, 07:57 AM
Wine yes, beer not so much. You should read Nietzsche's Birth of Tragedy. Dionysus loves winos.

I like wine, but Nietzsche gave me a headache when I tried to read some of his stuff (I think it was called Beyond Good and Evil). I found it alienating, I think. It was a lot of work just to arrive at notions that I thought were either common sense notions or that I just didn't agree with intuitively. But it's probably because I didn't understand it correctly. I usually need things explained to me in simple terms otherwise I tune out. I prefer a stable balance of say Noam Chomsky and Tom & Jerry. But yeah, I do like wine. And beer. In fact I love beer.